Will Offering “Bare-Bones” Plans Shield Large Employers From Health Care Reform Penalties?

When health care reform passed in 2010, “mini-med” programs (inexpensive, very limited health plans), were immediately targeted as inadequate. Only plans with special waivers have been allowed to continue. And even then, they will only be in effect until 2014 when the employer “pay or play” mandate takes effect.

“Bare-bones” plans, not to be mistaken for “mini-med” plans, are designed to barely cover minimal health reform requirements such as preventive services. Some “bare-bones” plans will not cover X-rays, surgery, or hospitalization.

Will offering a “bare-bones” plan protect employers from paying penalties?

The Affordable Care Act requires employers with 50 or more full-time equivalent workers offer coverage to their workers, or pay a penalty. The law simply refers to the required coverage as “minimum essential coverage.” To avoid or minimize the employer penalty, the group health plan needs to meet a 60 percent minimum value test and be affordable for employee-only coverage.

A brief explanation of the penalties is as follows:

  • A flat $2,000 non-deductible penalty is triggered by a failure to offer health coverage. When the $2,000 penalty is assessed it includes all full-time employees not offered coverage, beyond the first 30.
  • A $3,000 penalty is assessed on an as-applicable basis when coverage is offered, but it is deemed unaffordable or below minimum value. It is only triggered when an employee, who qualifies for tax credits on the Exchange, applies for coverage through the Exchange.

Initially, the IRS rejected “bare-bones/minimum value” plans as non-compliant and deemed them unsatisfactory to prevent both the $2,000 and $3,000 penalties. Upon closer review, the IRS has confirmed the employer is exposed under the $3,000 penalty, but they have not yet publicly re-addressed their position on the $2,000 penalty.

Many employers are obviously interested in escaping the $2,000 penalty, which applies very broadly. They are less worried about the $3,000 penalty, as the risk and exposure to this penalty is significantly lower than to the $2,000 penalty. This is due to a practical reason: not all employees will visit the insurance exchanges, and even those that do will not all qualify for the tax credits that are a prerequisite for the penalty to apply.

Employers wanting to explore options now may want to first examine the cost and benefits of offering a plan that at least meets the minimum essential coverage rules as required under the law (minimum value, and is affordable for employee-only coverage).

So to answer our opening question: No, offering a “bare-bones” plan will not likely shield employers from all exposure as required by the Affordable Care Act. However, if and when the IRS approves the “bare-bones” plans, an employer should then review those plan designs and costs if their desired strategy is to avoid the broader penalty, and simply anticipate paying the $3,000 if and when it is triggered.

CPEhr’s current health plan carriers are close to finalizing their 60% actuarial value plans and ratings. As carriers make their plans available, we plan to shop the market in anticipation of adding a plan that simply complies with the health care reform minimum essential coverage rules to our line-up.

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